Surging Business Formation in the Pandemic: Causes and Consequences?

Ryan A. Decker and John Haltiwanger
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Ryan A. Decker: Federal Reserve Board
John Haltiwanger: University of Maryland

Brookings Papers on Economic Activity, 2023, vol. 54, issue 2 (Fall), 249-316

Abstract: Applications for new businesses surprisingly surged during the COVID-19 pandemic, rising the most in industries rooted in pandemic-era changes to work, lifestyle, and business. The unexpected surge in applications raised questions about whether a surge in actual new employer businesses would follow. Evidence now shows increased employer business entry with notable associated job creation; and industries and locations with the largest increase in applications have had accompanying large increases in employer business entry. We also observe a tight connection between the surge in applications and quits - or close proxies for quits - both at the national and the local level. Within major cities, applications, net establishment entry, and our quits proxy each exhibit a "donut pattern," with less growth in city centers than in the surrounding areas, and these patterns are closely related to patterns of work-from-home activity. Reallocation of jobs across firm age, firm size, industry, and geography groupings increased significantly. Relatedly, there is evidence of a pause of the pre-pandemic trend toward greater economic activity being concentrated at large and mature firms, but this development is quite modest in magnitude.

Keywords: Business formation; COVID-19; economic activity (search for similar items in EconPapers)
Date: 2023
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